Rental Property Investor · Allentown, PA · Member since 2013 · 38 posts · 18 votes
Hello,
I'm waiting for the paperwork to come back for an LLC which will have 50/50 ownership between my partner and myself. We have funds to cover a down payment of a targeted fix and flip and a relative interested in offering the remainder of our offer in cash.
What is the best way to incorporate the third party funds into our offer? Will a bank owned, HUD or other auction site property accept proof of funds partially in the LLC name and partially from a third party not named in the LLC? Could we do a gift letter to the LLC?
I've also heard of having an investor become an equity partner of the LLC and not sure if that would apply to this situation, how that would be split since we are already at a 50/50 split (45/45/10?) and/or how that would pan out if we have other properties involved in the LLC that the equity partner is not involved in. Any thoughts or recommendations are appreciated.
I wouldn't worry about presenting proof of funds to the seller that are not in the name of the offering entity, they shouldn't care where the funds are coming from, but if it's an issue I'd just write a letter explaining that you have outside investors and that the name on some of the proof of funds will not be in the name of the LLC, but in the name of investors. How you structure the deal internally is not something I can comment on, but that's the way I'd present to the seller.
I wouldn't worry about presenting proof of funds to the seller that are not in the name of the offering entity, they shouldn't care where the funds are coming from, but if it's an issue I'd just write a letter explaining that you have outside investors and that the name on some of the proof of funds will not be in the name of the LLC, but in the name of investors. How you structure the deal internally is not something I can comment on, but that's the way I'd present to the seller.
Excellent, thank you @Jesse Gonzalez for the response. In regards to our structure of the deal...if there is no issue with funds coming from an outside investor, then we will keep the structure as is with a 50/50 split utilizing outside funds.
For a "cash offer" the POF will need to be in the name of the buyer on the contract. Otherwise it IS a financed offer, although you could make the offer with no financing contingency, and show the POF from your "lender".
Thank you @Wayne Brooks, that makes sense. I guess I was blinded by making a "cash offer" that I wasn't looking at it for what it is. In your opinion, would it be best to go that route...make a financed offer with no financing contingency...as opposed to either incorporating a gift letter from the third party to the LLC OR bringing in the third party as an equity partner in the LLC? Do you think HUD or a bank (acting as the seller) would regard a financed offer with no contingency as strong as a cash offer?
@Ryan Oldenhage Yes, financed with no financing contingency (particularly with a 10% or better EM) is as good as cash. And if you make it a "cash" offer, they will require a POF in the buyer's name. Bringing him as an equity partner is fine, you still need the POF in the buyer's (the entity) name, not the individual's, for a "cash" offer.